Frequently asked questions about energy efficient home improvements and residential clean energy property credits — General questions

Updated FAQs were released to the public in Fact Sheet 2024-15PDF, April 17, 2024.

Q1. Will a taxpayer qualify for the credits if the property installed has been used by another individual? (added December 22, 2022)

A1. No. Used property is not eligible for the Energy Efficient Home Improvement Credit or the Residential Clean Energy Property Credit.

Q2. Are the credits refundable or nonrefundable? (added December 22, 2022)

A2. Both the Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit are nonrefundable personal tax credits. A taxpayer claiming a nonrefundable credit can only use it to decrease or eliminate tax liability. A taxpayer will not receive a tax refund for any amount that exceeds the taxpayer's tax liability for the year.

Q3. Is a taxpayer who is subject to the alternative minimum tax (AMT) eligible to claim the credits? (added December 22, 2022)

A3. Yes. A taxpayer who is subject to the AMT is eligible to claim both the Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit and may offset the AMT with those credits.

Q4. What happens to the Energy Efficient Home Improvement Credit or the Residential Clean Energy Property Credit if a government or a public utility provides a subsidy (for example, an incentive, grant, or rebate) to a taxpayer to purchase or install a qualifying property? (updated April 17, 2024)

A4. The answer depends on the facts that apply to each taxpayer.

• Public Utility. Generally, if a public utility provides (directly or indirectly) a subsidy to a customer for the purchase or installation of any energy conservation measure, the value of the subsidy is not included in the customer's gross income. But as a result, the taxpayer may not claim a credit for the amount of the subsidy that is used to purchase or install qualifying property. This rule applies whether a third-party contractor receives a subsidy on behalf of the taxpayer or the taxpayer receives the subsidy directly. However, payments from a public utility to compensate for excess generated electricity not consumed by the taxpayer but delivered to the utility's electrical grid (for example, net metering credits) are not subsidies for installing qualifying property and do not affect the taxpayer's credit qualification or amounts. 
   
• Rebates. Rebates generally represent a reduction in the purchase price or cost of property, and the taxpayer must reduce the amount of the expenditure on which the taxpayer calculates the tax credit by the amount of the rebate. In general, rebates are nontaxable purchase price reductions if they are based on or related to the cost of the property; received from someone having a reasonable connection to the sale of the property (for example, the manufacturer, distributor, or seller/installer) and do not represent payment or compensation for services provided by the taxpayer. The IRS will treat as rebates amounts paid for the purchase of energy efficient property and improvements as part of the Department of Energy's "Home Energy Rebate Programs" under sections 50121 and 50122 of the IRA. See Announcement 2024-19PDF.
   
• State Energy-Efficiency Incentives. A state may provide incentives to encourage taxpayers to purchase property that also qualifies for an Energy Efficient Home Improvement Credit or the Residential Clean Energy Property Credit. Generally, a taxpayer is not required to reduce the purchase price or cost of property acquired with a governmental energy-efficiency incentive unless that incentive qualifies as a rebate under federal income tax law. While many states label their energy-efficiency incentives as "rebates," these incentives may not qualify as rebates or purchase-price adjustments under federal income tax law and could be included in the taxpayer's gross income for federal income tax purposes.

Q5. What are the requirements for a home energy audit to qualify for the Energy Efficient Home Improvement Credit? (added December 22, 2022)

A5. The audit must include an inspection of a dwelling, including condominiums and certain manufactured homes, located in the United States that is owned or used by the taxpayer as the taxpayer's principal residence. The home energy auditor must provide a written report (to the taxpayer) that identifies the most significant and cost-effective energy efficiency improvements for that dwelling, including an estimate of the energy and cost savings for each such improvement. The auditor must meet the certification or other requirements specified by the Department of the Treasury and the Internal Revenue Service in forthcoming guidance.